CHICAGO (June 26, 5:45 p.m. EDT) — The majority of customers prowling the aisles of NPE are oblivious to how federal tax-law changes passed into law a month ago can save them 20-35 percent on new capital-equipment purchases, according to some machinery executives.
And, they assert, many equipment suppliers also are doing a poor job of educating the masses, missing a major sales opportunity.
When President Bush on May 28 signed into law the Jobs & Growth Tax Relief Reconciliation Act of 2003, the majority of public attention focused on the provisions affecting individuals. But also included in the bill are changes to allow greatly accelerated capital-equipment depreciation and expensing that can translate into major savings for equipment buyers.
Sandy Guthrie, president of Merritt Davis Corp. (Booth N4509) said virtually no one seems aware of what can amount to a large price discount on new purchases.
“You could ask 10 people on our booth about it, and the one person who said, yes, they knew about it, would be lying.” Guthrie said his firm sold a $750,000 reclaim system Monday at NPE, and the customer had no clue that he would realize a tax-related savings of 20 percent, or $150,000.
“We start to put it into our quotations, and people ask us what it is,” he said of the tax-related discounts. Guthrie called the new tax terms “an amazing tool,” but said the industry has work to do to raise buyers' awareness that it exists and will not last.
The new law applies to capital equipment purchased between May 6, 2003, and Dec. 31, 2004. To qualify, the buyer — who must be profitable and paying U.S. taxes to receive the tax break — must put the new equipment into service by the end of 2004.
The so-called “bonus depreciation” rate applies to all qualifying buyers. The Section 179 expensing allowance also applies to small companies. David Antoniuk, vice president of finance for extruder maker Davis-Standard Corp. (Booth N5107), provided a layman's explanation of the new tax incentives. The bill contains a 50 percent expensing allowance for machine tools and other capital equipment bought within the alloted time and put into service by 2005. This replaces a temporary 30 percent expensing allowance. Under the new law, firms can write off 57 percent in year one.
Antoniuk highlighted the bottom-line impact of accelerated write-offs:
• A qualifying small customer that buys a $100,000 machine after May 5 this year can write off the entire purchase this year, saving $35,000 on its 2003 tax bill.
• A qualifying large customer that buys a $100,000 machine can expense $57,000 in 2003.
While most customers are unaware of these potential savings, a few are paying attention. Bill Carteaux, executive managing director of Demag Plastics Group (Booth S2202), said he had one customer cancel a pending order from earlier in the year and replace it with a post-May 5 order, to exploit the savings.
Carteaux noted that in the past such government tax incentives have done little to stimulate sales. However, he said, with most used equipment already snatched up during the recession, “maybe this [tax break] will be a factor for those looking to replace equipment.”
Carteaux, who also is chief executive officer of Van Dorn Demag Corp., admitted: “We as an industry have to do more to get the word out.”